What Does It Take To Get A Newspaper’s Share Price Up? Well, Market Rumors That Warren Buffett Might Be Interested In Taking A Stake Is Better Than Share Buybacks, Higher Dividends, Or Just About Anything As The New York Times Just Learned

Philip Stone February 8, 2007

A strange thing happened on Wall Street Wednesday. The New York Times’ shares that have been languishing near yearly lows suddenly jumped some 7% during the trading day, and by the close had held onto a 3.8% increase. All it took to get the shares moving were two words “Warren Buffet”

The very mention of his name ...

The rumor (remember, you buy on the rumor and sell on the fact) was that Buffett was sniffing around The New York Times, possibly Gannett, too – it ended up 1.36% -- with a view to taking stakes. And let’s face it, if its good enough for Warren Buffett then it’s good enough for the rest of us.

But if nothing else, if you were an holder of NYT stock waiting just for that moment when you could get out then having the shares go up 7% was magic.  Some people must have taken that opportunity to sell, for by the end of the day the gain was down to 3.8%, still very nice, especially since there were no confirmations whatsoever from Buffett or his Berkshire Hathaway that there was any truth to the rumors.

Even though Buffett through Berkshire Hathaway holds a 22% stake in the Washington Post where he sits on the board, and he also owns the Buffalo News in New York, the fact is that he has had very little good to say about the newspaper industry in the past couple of years

Back in 2005 he described his own news habits as an example of what is wrong with newspapers. He said that he goes onto the Internet and takes down stories from major newspaper sites the night before their morning print delivery and he noted he does not pay any subscription for that electronic news. His Economics 101 reading on that: “It’s not a good idea to be charging a lot of money for something that you can get for free.”

And then there is the economics of the production process for newspapers vis a vis the Internet. He asked how newspapers can compete with the Internet’s simple click by a computer mouse as opposed to an extremely expensive newspaper production process that starts with cutting down trees and feeding paper through multi-million dollar presses.

And if that wasn’t enough he pointed out that the Internet is capturing more and more advertising money, some of it coming from monies that previously would have been spent on print.

And while he recognized that newspaper web sites are doing well he was by no means convinced that newspapers will dominate news on the web.

From all of that his long-range conclusion: “ The economics of newspapers are very, very close to certain to deteriorate over the next 10-20 years. I see nothing that will turn around the erosion from both the circulation and advertising standpoints."

Then at the last Berkshire Hathaway annual meeting he told shareholders,

“Sometimes there’s a perception lag between the actual erosion of a business and how that erosion is seen by investors. Certain newspaper executives are going out and investing in other newspapers (was he thinking about McClatchy buying Knight Ridder?) I don’t see it.

“It’s hard to make money buying a business that’s in permanent decline. If anything, the decline is accelerating. Newspaper readers are heading into the cemetery, while newspaper non-readers are just getting out of college. The old virtuous circle, where big readership draws a lot of ads, which in turn draw more readers, has broken down.”

Of course opinions can change, but those words certainly don’t sound like someone who would invest in newspapers. But he would be a superb shareholder for the New York Times if there was any truth to the rumor.

Buffett is fond of telling everyone how he takes a long-term position with his investments, and he leaves management alone. He’s not like a Wall Street investment fund manager looking for short-term profits and at the expense of the long-term health of the company. That’s the kind of investor the New York Times would love to have and no doubt chairman and publisher Arthur Sulzberger would be over the moon if Buffett would buyout Morgan Stanley’s 7% holding and that make problem go away, too.

What happened Wednesday is also a lesson on how rumors can really affect a market, and a question the financial media have battled for years is how to report those rumors. In a former life this writer was once the financial news products manager for Reuters in Europe and it was a constant wrestle with financial clients on how to handle rumors. If an agency like Reuters was to print all the rumors going around then people at the drop of a hat would be coming up with false information to instantly move a share up and down – the rumor only needs to be out there for a minute or so for unscrupulous people to make a tidy financial killing.

So basically Reuters uses the backdoor approach. It doesn’t report the rumor as such, but rather it reports how the market is reacting because of a rumor. Perfect example is its lead paragraph on the Buffett story: “New York Times Co. shares rose as much as 7.5% on Wednesday and option traders cited unusual call volume on speculation billionaire investor Warren Buffett could build a stake in the company.”

Back in early December the shares had a 7.5% up day – their biggest increase in six years -- based on rumors that a billionaire was interested in bidding or that Sulzberger was planning on taking the company private. Northing came of either rumor and the shares sank back.

But then, as now, a good rumor in the hand is worth more than any buyback or increased dividend or the announcement of new cost cutting measures in getting that share price to jump. And unfortunately there are enough unscrupulous people out there who are very aware of that.

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